The present invention relates in general to collective business systems and in particular, to a collective business system including methods and apparatus for providing premium business support mechanisms from suppliers thereof to independent companies, tradespersons or professionals in a common field of endeavor through a substantially liquid asset based, for-profit business entity. By virtue of the system, the participating business entities receive enhanced purchasing power, national marketing capabilities and other business leverage support to compete effectively with much larger competitors in their industry.
Collective business systems, as referred to herein, include business organizations or associations typically comprised of relatively large numbers of businesses, tradespersons or professionals in the same or related fields of endeavor, which pool resources, share information or provide other benefits for their members. In the past, collective business systems such as the trade association, the cooperative and the franchise were created to allow groups of independently owned businesses with common interests to successfully compete in the marketplace.
Beginning in the latter part of the twentieth century, the business world has witnessed the consolidation of all types of businesses through mergers, rollups or acquisitions. Typically, by the end of the consolidation process, a particular industry or profession becomes dominated by three or four nationally-based enterprises. Under these circumstances, the small, local, independent company is often forced to sell to one of the dominant entities because it can no longer compete profitably with large consolidated organizations. Typically, locally based businesses are unable to compete because they lack the capital, global marketing capabilities, purchasing power and expensive technology necessary to operate efficiently. This trend toward consolidation is expected to continue well into the twenty-first century.
Presently, and for the foreseeable future, the inherent limitations of traditional collective business systems such as the trade organization, the cooperative and the franchise render them considerably less effective than they once were in advancing the business interests of their constituents. The following is a brief synopsis of those traditional collective business systems.
1. Trade Association
Trade associations are non-profit organizations in which the individual members are companies or individuals engaged in a common business pursuit. Competitors join together to create a platform format in which they deal with common problems of their industry. Any applicant meeting the standards of the association must be accepted as a member. Anti-trust law prohibits a member trade association from denying an otherwise qualified applicant""s membership based upon a geographical proximity to an existing member. Trade associations commonly offer their members educational programs, the opportunity to come together at meetings to discuss common problems, and marketing materials designed to be imprinted by each member with its relevant information. Trade associations also offer elective group purchasing plans. The trade association bears no credit risk in these transactions but instead, provides chosen vendors with access to a large body of member customers. Because the trade association does not pledge its credit, the vendor must rely upon the credit worthiness of each purchaser.
To sustain its operations, a trade association generally receives an initiation fee and/or a yearly membership fee (collectively xe2x80x9cduesxe2x80x9d) from its members, and it may collect rebates or commissions from the purchasing plan suppliers.
2. Cooperative
A cooperative is a non-profit organization somewhat similar to a trade association. A significant difference between the cooperative and the trade association, however, is that with a trade association, the members have a non-equity position in the association, whereas in the typical cooperative the members will have an equity interest as all members of the cooperative own a portion of the cooperative. Generally, a cooperative only addresses one facet of business operation needs of interest to its members, e.g., purchasing of goods and services at advantageous prices. A purchasing cooperative is at risk in that it holds considerable assets in the form of inventory and provides credit to the businesses in the cooperative. In addition, the members of the cooperative risk loss of invested capital if the cooperative proves unsuccessful.
The cooperative utilizes its volume leverage with suppliers in purchasing products and services for less than the individual member company could obtain outside of the cooperative. The cooperative marks up the purchased products or services in order to cover operating expenses. Any net income achieved by the cooperative is then returned to the cooperative members in the form of a redistribution of profits or dividends. Like a trade association, cooperatives cannot exclude members on the basis of geography or create exclusive territories.
There are also cooperatives in which the sole function is for marketing and advertising in a given region. New car dealers and fast food franchisees typically form marketing and advertising cooperatives.
3. Franchise
The franchise is a for-profit collective business system wherein the franchiser offers proprietary products or services to its franchisees. The franchiser generally gives considerable marketing support to its franchisees. In exchange, the franchisees are subject to a substantial amount of control by the franchiser concerning its operations and marketing including the use of the franhisor""s trade names, trademarks and copyrighted materials. A franchisee""s employees typically are required to wear uniforms and to dress as specified by the franchisor. Franchises can be offered by the franchisor on a teritorial basis without violating antitrust laws. Ordinarily, the franchisee owns the non-real estate assets of a franchise. There is generally a substantial fee paid by the franchisee for the privilege of becoming a franchisee. This is followed by a period of training that is offered on an ongoing basis throughout the franchise. Most states have laws highly protective of franchisees in prohibiting the franchisor from terminating the franchise so long as the franchisee meets predetermined business requirements and does not otherwise violate the terms of the franchise agreement.
The franchisor derives income from the initial franchise fees and products and services, which are offered to the franchisees on either a mandatory or optional purchase basis. The franchisor generally derives additional income based upon a percentage of the volume of business conducted by the franchisee. The franchise agreement also usually provides that the franchisee can only sell products supplied or approved by the franchisor.
Among the traditional collective business systems only the franchise can create exclusive trade territories. Conversely, however, the franchise structure severely inhibits the independence of the franchisee and the success of the franchisee is inextricably tied to the success of the franchisor. The franchisee is not free to introduce non-approved products or services and is generally precluded from introducing innovative business or marketing strategies by the extensive control imposed by the franchisor.
The trade organization imposes relatively low membership dues on its members. However, because initiation fees and annual membership fees are nominal, the trade organization lacks the ability to engage in offering its members national marketing capability, access to expensive technologies and cost-effective purchasing programs for major purchases due to a lack of capital. Furthermore, being non-profit, trade associations do not have the management mentality necessary to sustain major projects such as national sales and marketing. Today, they are of little help in enabling their small, independent members to compete with large national competitors.
Cooperatives, like trade associations, are hampered because they cannot carve out or assign geographic territories to their individual members and are limited to executing a single business function, e.g., purchasing of products and services or marketing.
An advantage exists, therefore, for a collective business system, which can enable independent business entities in a common field of endeavor to compete effectively with large nationally and internationally based competitors. The collective business system should be structured to include a substantially liquid asset based, for-profit business entity which can assign geographic territories of operation to its participants, as well as provide its participants with purchasing power leverage, discount capital financing, global marketing capabilities, access to high cost technology and a broad range of goods and services. The system should not impose burdensome dues or other fees on its members. And, for participants who are also shareholders in the for-profit business entity, the system offers additional financial rewards in terms of equity growth and dividend distributions.
The present invention provides a collective business system comprising a substantially liquid asset based, for-profit hub business entity offering a menu of premium business support mechanisms on an out-source level to a group of independently owned companies or independent tradespersons or professionals engaged in a common field of endeavor. The recipients of these business support mechanisms may be referred to as xe2x80x9cparticipantsxe2x80x9dand the providers thereof either xe2x80x9csuppliers,xe2x80x9d xe2x80x9cvendorsxe2x80x9d or the like. Because of its for-profit nature and that it is neither a trade organization nor a cooperative, the hub business entity may assign each participant in the system an exclusive geographical territory. This provides a base-level competitive advantage to each participant in that its business activities will not be in geographic competition with and subject to dilution or detraction by other participants in the system. The menu of business support mechanisms offered by the hub business entity to the participants on an out-source basis are preferably those necessary to enable individual participants to remain competitive with much larger businesses, but which would otherwise be economically infeasible for the participants to acquire or utilize on an in-house basis. The system offers to its participants business support mechanisms including, without limitation, discount capital financing, national marketing capabilities, access to high technology, enhanced purchasing power, logistics support and accessibility to highly specialized business consulting services.
The present system effectively and efficiently serves local independent businesses or professional entities or organizations who join the system through a contractual relationship with a substantially liquid asset based, for-profit business entity herein referred to as a xe2x80x9chub business entityxe2x80x9d or xe2x80x9cHBE.xe2x80x9d The HBE, which may be a corporation, a partnership or any species, variant or hybrid thereof, provides a platform for the participants to effectively compete against much larger business organizations and enterprises.
By virtue of the HBE, the present collective business system incorporates various advantageous aspects of prior art business mechanisms, but is much more robust and all-encompassing than the collective business systems heretofore known in the art. The HBE is multi-dimensional, multi-layered, complex, and utilizes a high degree of sophisticated technology.
The present collective business system, hereinafter referred to as the hub business entity system or xe2x80x9cHBESxe2x80x9d is made up of several factors designed to serve a multitude of business needs of its participants. A non-limitative listing of these factors and business needs includes:
1. a for-profit hub business entity (xe2x80x9cHBExe2x80x9d);
2. a geographically-segmented group of participants in the HBE;
3. an array of independent goods, services or programs suppliers;
4. a consolidating industry or profession (or field of common endeavor)
5. an industry where the HBE can effectuate lower purchase costs through volume than any individual participant could obtain outside the HBE;
6. the need for a nationally recognizable xe2x80x9cbrandxe2x80x9d name; and
7. sophisticated technology requirements such as an industry-specific e-commerce system and other higher order of technology than the individual participants could obtain outside the HBE;
The present invention also contemplates accommodation of participants"" or HBE""s customers or potential customers in the same or similar industry served by the collective business system. Such customers may have multiple locations on a regional, national or even international level or they may be single large volume customers requiring a large asset base to service.
The HBE is an essential element of the HBES. The HBE has only minimal capital requirements, most of which are devoted to start-up costs. The HBE""s assets will be comprised of cash, receivables and state-of-the-art technology. The HBE preferably Would hold no inventory or other substantial tangible assets, although it will assume credit risks in conjunction with group purchasing programs. Its business operations are preferably managed and accomplished by a minimum staff of individuals disciplined in, at least, national marketing and sales, group purchasing, creative financing and technology. Its principal asset will be an income stream derived from the programs, services and group purchasing plans, which it offers to the participants on an exclusive basis.
Once established, the HBE will offer a variety of premium products and services to a group of independently owned and operated participants in a common business or industry. Because of the geographical exclusivity afforded by the HBE, each participant is insured that the HBE will not also support another participant within the described geographical territory, thereby providing an inherent competitive advantage similar to those bestowed by a franchisor on its franchisees. Unlike a franchise system, however, which requires the franchisee to obtain products and services from the franchisor, the participants can elect from a xe2x80x9cmenuxe2x80x9d of business support mechanisms which it wishes to receive from an array of independent (i.e., non-HBE-controlled) goods, services and other business support mechanism providers. Accordingly, each participant is free to procure any desired assortment of products, services and other business support mechanism options, both within and outside of the system, which are not under control of the HBE. The HBE also will not compete with trade organizations. It is anticipated that participants may maintain their trade organization memberships, if they so choose, but will contract for the premium products, services and other business support mechanisms offered by the HBE, which a trade organization would not ordinarily supply.
Operation of the HBE is preferably conducted by a suitable electronic commerce (xe2x80x9ce-commercexe2x80x9d) system to which all participants will be required to join. The HBE e-commerce system will link the HBE, selected suppliers, participants and customers in an essentially paperless network of commerce. The participants will be able to access product information and submit orders directly to the HBE""s selected vendors. The vendor, however, will invoice the HBE and the HBE in turn will invoice the participant for its purchases. By assuming the credit risk for a large volume of transactions, the HBE is able to negotiate better prices than individual participants might otherwise obtain for themselves from the suppliers. The HBE will receive commissions or rebates from the vendors, some or all of which may be shared at the discretion of the HBE with the participants to further lower the cost of the purchases. In addition, the e-commerce system will allow participants to access software programs offered by the HBE. Customers may also access the HBE to obtain information and technology services, while purchasing goods and other services directly from the participants.
The HBE controls the income streams generated by the business support mechanisms offered to the participants and customers. The HBE incurs no capital-intensive risk in that it holds virtually no tangible assets and the capital expenditures are made by the participants at discounted acquisition costs and financing rates. Participants in the HBES who are also shareholders in the HBE may also receive additional financial benefits such as equity growth in their shares and dividend distributions.
The HBES is a unique vehicle which will allow a group of independent entities in a common industry, trade or profession to be linked together through the HBE so that they will be able to compete with much larger competitors and to avoid the economic pressure to sell or merge with larger industry-wide competitors. Some of the premium services and advantages offered by the HBES to its participants include, at a minimum, the following:
1. geographically assigned business locations;
2. national and international sales and marketing capabilities and the incremental revenue derived therefrom;
3. group purchasing plans to include discounted goods and services and discounted purchasing programs for capital purchases;
4. linkage of the HBE, participants, and vendors through sophisticated e-commerce system;
5. sophisticated technology services not economically feasible to a local stand alone company;
6. strategic alliances with national organizations representing potential customers for the goods or services offered by the participant;
7. access to capital financing at lower interest rates than the participant can obtain on its own; and
8. the ability for the equity participants to be part of an IPO without losing control via the IPO route.
Other details, objects and advantages of the present invention will become apparent as the following description of the presently preferred embodiments and presently preferred methods of practicing the invention proceeds.